Tag Archives: criminogenic environment

Nowadays we have zero prosecutions of any of the people that led the three fraud epidemics that drove this crisis. And now they are highly skilled and have seen that they can get away with financial murder. And so they are already back in the business, already selling other toxic stuff and they’re going to produce the next crisis…

This is Terry Carter’s latest work and appears in the American Bar Association Journal. He interviews Bill Black along with other prominent figures about the lack of prosecution brought against those responsible for the financial crisis. You can read it here.

An ambitious 12 nation trade accord pushed by President Obama would allow foreign corporations to sue the United States government for actions that undermine their investment “expectations” and hurt their business, according to a classified document.

Why are we negotiating the TPP at all? Why is it the business of the Representatives of the people of the United States in Congress to support agreements that will mitigate the political risks borne by American businesses who chose to invest in other nations, as well as the political risks borne by foreign corporations, who choose to invest in the United States? Why is it their business to provide protection against such risks to foreign corporations beyond the protections we provide to our own corporations?

This is the fourth and final column in my series that began by focusing on Richard M. Bowen, III. Bowen blew the whistle on Citi’s sale of scores of billions of dollars in toxic mortgages, primarily to Fannie and Freddie, through fraudulent reps and warranties. After Bowen protested and blew the whistle within Citi to its senior management (including Robert Rubin) – Citi’s senior officers’ classic accounting control fraud strategy expanded both in terms of the volume of sales and the incidence of fraudulent reps and warranties – which rose to 80 percent.

I have explained how Bowen and his boss’ banking careers were destroyed by the retaliation of Citi’s senior managers and how the SEC, the Department of Justice (DOJ), and the Financial Crisis Inquiry Commission (FCIC) have followed the disgraceful policy of trying to keep Bowen’s detailed disclosures from becoming public and being used to bring Citi’s criminal controlling officers to justice.

During a recent Amy Goodman interview of Lori Wallach, director of Public Citizen’s Global Trade Watch, on her Democracy Now show, Wallach neatly summarized the problems of progressives with the TPP:

Well, fast-tracking the TPP would make it easier to offshore our jobs and would put downward pressure, enormous downward pressure, on Americans’ wages, because it would throw American workers into competition with workers in Vietnam who are paid less than 60 cents an hour and have no labor rights to organize, to better their situation. Plus, the TPP would empower another 25,000 foreign corporations to use the investor state tribunals, the corporate tribunals, to attack our laws. And then there would be another 25,000 U.S. corporations in the other TPP countries who could use investor state to attack their environmental and health and labor and safety laws. And if all that weren’t enough, Big Pharma would get new monopoly patent rights that would jack up medicine prices, cutting off affordable access. And there’s rollback of financial regulations put in place after the global financial crisis. And there’s a ban on “Buy Local,” “buy domestic” policies. And it would undermine the policy space that we have to deal with the climate crisis—energy policies are covered. Basically, almost any progressive policy or goal would be undermined, rolled back. Plus, we would see more offshoring of jobs and more downward pressure on wages. So the big battle is over fast track, the process. And right now, thanks to a lot of pushback by activists across the country, actually, they don’t have a majority to pass it. But there’s an enormous push to change that, and that’s basically where we all come in.

I, too, am bothered by all the things Wallach mentioned and I, too, am strongly opposed to the TPP, and the upcoming Transatlantic Trade and Investment Partnership (TTIP), and the Trade in Services Agreement (TISA), which would impose similar agreements and rules to the TPP. So, I thought it would be worthwhile to add a few other concerns to the ones she mentions.

In this second column about Richard M. Bowen, III, I discuss the failure of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to make use of his expertise and testimony. Bowen was the Citi SVP who blew the whistle on Citi’s senior managers’ strategy of knowingly buying massive amounts of fraudulently originated loans sold to Citi through fraudulent reps and warranties and then reselling those toxic mortgages (primarily to Fannie and Freddie) through false reps and warranties. My first column described that strategy and the failures of the Financial Crisis Inquiry Commission (FCIC) to understand how damning Bowen and Clayton’s testimony was. Clayton was the dominant “due diligence” firm for secondary market mortgage sales and was designed to be an easy grader. The two great epidemics of mortgage origination fraud (appraisal fraud and liar’s loans) were so endemic and so crude that even Clayton found a 46% incidence of false reps and warranties by the sellers to the secondary market who fraudulently originated the loans. That incidence grew to 54% by the second quarter of 2007.

Sometimes the fates conspire to bring together two stories that when considered together bring that lightbulb moment. The first story, dated March 18, 2015, is from the Wall Street Journal. It overwhelmingly conveys the opinion of Rodgin Cohen, the super-lawyer to the super-fraudulent bank CEOs. He was a leader of the financial regulation wrecking crew that produced the criminogenic environments that drove our recurrent, intensifying financial crises. As I will explain in a future column, Cohen basically has one speech, which he has repeated with minor variants for decades. The latest Cohen variant claims that:

“[T]he regulatory environment today is the most tension-filled, confrontational and skeptical of any time in my professional career.

Cohen says the strained relations between government regulators and bank officials stems from ‘the myth of regulatory capture.’

‘The consequences of such as approach are likely to be less effective examinations, not more,’ he said. ‘Unless we deal with the canard of regulatory capture, we will inevitably be placing pressure on examiners to disprove this charge.’”

On September 30, 2014 I wrote an article to explain the true significance (and horrific analysis by the NY Fed and much of the media) of Carmen Segarra’s key disclosure. My title was “A ‘Perfectly Legal’ Scam is Perfectly Unacceptable to Real Bank Supervisors.” Segarra was the NY Fed examiner who was fired for her criticisms of Goldman Sachs. Segarra was part of the group of new examiners hired as a result of the NY Fed’s admission that it had failed utterly under Timothy Geithner and that the failure had helped make possible the financial crisis. Segarra was part of the new crew that was supposed to radically vitalize the NY Fed’s broken supervisory arm. (Notice that I did not say “revitalize” – the NY Fed has always been Wall Street’s Fed bank, not America’s. It has never been an effective supervisor.)

The point I made was how similar the scam that Goldman crafted to reduce Banco Santander’s capital requirement was to the scam that Lehman used to reduce its capital requirement and pretend that it was healthy when it was deeply insolvent. The key thing that Segarra disclosed was that Mike Silva, her NY Fed boss, claimed that Lehman’s failure caused a “Road to Damascus” conversion that transformed him from a regulatory weakling into the big banks’ worst nightmare – a tough bank supervisor. I showed that, in reality, he did nothing when he learned of Goldman’s scam. The pathetic scope of his conversion is that he now understood that what Goldman and Santander were doing was unethical and endangered the global financial system, but remained unwilling to stop, try to stop, or even criticize Goldman and Santander’s scam.

I am writing a series of columns about the Republican fantasy team of apologists for the elite banksters. Jeb Hensarling (R, TX), chair of the House banking committee that is taking the lead in trying to further deregulate banking and Peter Wallison, one of the chief architects of the most recent banking crisis, are teaming up to flog Wallison’s book. The book attempts to convince its readers that Wallison’s leadership of the effort to push the three “de’s” – deregulation, desupervision, and de facto decriminalization – played no role in creating the criminogenic environment that produced the three most destructive epidemics of financial fraud in history. Hensarling is hosting Wallison’s book unveiling.

They are the perfect fantasy team because they inhabit a fantasy world of their own construction that rests on a foundation of non-facts with appalling logical leaps. This first column begins with a brief introduction to how crazy Hensarling is – and recall that he is the Republican Party’s leader on financial issues. George Akerlof and Paul Romer, in their classic 1993 article “Looting: The Economic Underworld of Bankruptcy for Profit,” explained that the 1982 federal deregulation law was “bound to produce looting.”

The Swedish Central Bank’s (the “Bank”) prize in economics has gone to Jean Tirole. It is always good to test such an award by looking at the writings of the recipient in an area in which the reader has particular expertise. In my case, that would include the Savings and Loan debacle, financial regulation, and control fraud. Tirole’s book: The Theory of Corporate Finance was published on January 1, 2006 during the heart of the three raging epidemics of accounting control fraud that were hyper-inflating the world’s largest financial bubble and about to create the financial crisis and the Great Recession.

As I have long emphasized and will be explaining at greater length in a book about the failures of economics and economists as exemplified by far too many of the recipients of the Bank’s Prize, economics is the only discipline in which the understanding of the field’s subject of study has gone backwards. In particular, the praxis recommended by economists has proven highly criminogenic and is the primary explanation for why we suffer recurrent, intensifying crises, the rise of crony capitalism that cripples democracy and ethics, and spiraling inequality and low growth in the regions that suffer the greatest predation by our parasitical financial centers. Tirole wrote at the ideal time to judge his understanding of corporate finance as it was actively causing these catastrophes.